1.
US GAAP vs. IFRS
The basics
January 2009

2.
Table of contents
2 Introduction
5 Financial statement presentation
7 Interim financial reporting
8 Consolidations, joint venture accounting and equity
method investees
11 Business combinations
13 Inventory
14 Long-lived assets
16 Intangible assets
18 Impairment of long-lived assets, goodwill and
intangible assets
20 Financial instruments
24 Foreign currency matters
26 Leases
29 Income taxes
32 Provisions and contingencies
34 Revenue recognition
36 Share-based payments
38 Employee benefits other than share-based payments
40 Earnings per share
41 Segment reporting
42 Subsequent events
43 Related parties
44 Appendix — The evolution of IFRS

3.
Introduction
It is not surprising that many people who follow No publication that compares two broad sets of
the development of worldwide accounting accounting standards can include all differences
standards today might be confused. Convergence that could arise in accounting for the myriad of
is a high priority on the agendas of both the business transactions that could possibly occur.
US Financial Accounting Standards Board (FASB) The existence of any differences — and their
and the International Accounting Standards materiality to an entity’s financial statements —
Board (IASB) — and “convergence” is a term depends on a variety of specific factors including:
that suggests an elimination or coming the nature of the entity, the detailed transactions
together of differences. Yet much is still made it enters into, its interpretation of the more
of the many differences that exist between general IFRS principles, its industry practices,
US GAAP as promulgated by the FASB and and its accounting policy elections where
International Financial Reporting Standards US GAAP and IFRS offer a choice. This guide
(IFRS) as promulgated by the IASB, suggesting focuses on those differences most commonly
that the two GAAPs continue to speak found in present practice and, where applicable,
languages that are worlds apart. This apparent provides an overview of how and when those
contradiction has prompted many to ask just differences are expected to converge.
how different are the two sets of standards?
And where differences exist, why do they exist,
and when, if ever, will they be eliminated?
Why do differences exist?
As the international standards were developed,
In this guide, “US GAAP v. IFRS: The basics,” the IASB and its predecessor, the International
we take a top level look into these questions Accounting Standards Committee (IASC),
and provide an overview, by accounting area, had the advantage of being able to draw on
both of where the standards are similar and the latest thinking of standard setters from
also where they diverge. While the US and around the world. As a result, the international
international standards do contain differences, standards contain elements of accounting
the general principles, conceptual framework, standards from a variety of countries. And
and accounting results between them are often even where an international standard looked
the same or similar, even though the areas of to an existing US standard as a starting point,
divergence seem to have disproportionately the IASB was able to take a fresh approach
overshadowed these similarities. We believe to that standard. In doing so, the IASB could
that any discussion of this topic should not lose avoid some of the perceived problems in the
sight of the fact that the two sets of standards FASB standard — for example, exceptions
are generally more alike than different for most to the standard’s underlying principles
commonly encountered transactions, with IFRS that had resulted from external pressure
being largely, but not entirely, grounded in the during the exposure process, or practice
same basic principles as US GAAP. difficulties that had emerged subsequent
2 US GAAP vs. IFRS The basics

4.
to the standard’s issuance — and attempt to Will the differences ever be
improve them. Further, as part of its annual eliminated?
“Improvements Project,” the IASB reviews its
Both the FASB and IASB (the Boards) publicly
existing standards to enhance their clarity and
declared their commitment to the convergence
consistency, again taking advantage of more
of IFRS and US GAAP in the “Norwalk
current thinking and practice.
Agreement” in 2002, and since that time have
For these reasons, some of the differences made significant strides toward that goal,
between US GAAP and IFRS are embodied in including formally updating their agreement in
the standards themselves — that is, they are 2008. Additionally, the United States Securities
intentional deviations from US requirements. and Exchange Commission (SEC) has been very
active in this area. For example, within the past
Still other differences have emerged two years, the SEC eliminated the requirement
through interpretation. As a general rule, for foreign private issuers to reconcile their
IFRS standards are more broad than their IFRS results to US GAAP and proposed an
US counterparts, with limited interpretive updated “Roadmap” addressing the future use
guidance. The IASB has generally avoided of IFRS in the United States. The Roadmap
issuing interpretations of its own standards, includes the potential for voluntary adoption
preferring to instead leave implementation of IFRS by certain large companies as early as
of the principles embodied in its standards 2009 and contemplates mandatory adoption
to preparers and auditors, and its official for all companies by 2014, 2015 or 2016. The
interpretive body, the International Financial SEC has stated that continued progress towards
Reporting Interpretations Committee (IFRIC). convergence is an important milestone that it
While US standards contain underlying will assess when ultimately deciding on the use
principles as well, the strong regulatory and of IFRS in the United States.
legal environment in the US market has resulted
in a more prescriptive approach — with far more Convergence efforts alone will not totally
“bright lines,” comprehensive implementation eliminate all differences between US GAAP
guidance and industry interpretations. and IFRS. In fact, differences continue to exist
in standards for which convergence efforts
Therefore, while some might read the broader already have been completed, and for which
IFRS standard to require an approach similar no additional convergence work is planned.
to that contained in its more detailed US And for those standards currently on the
counterpart, others might not. Differences also Boards’ convergence agenda, unless the
result from this divergence in interpretation. words of the standards are totally conformed,
interpretational differences will almost certainly
continue to arise.
US GAAP vs. IFRS The basics 3

5.
The success of a uniform set of global
accounting standards also will depend on the
willingness of national regulators and industry
groups to cooperate and to avoid issuing
local interpretations of IFRS and guidance
that provides exceptions to IFRS principles.
Some examples of this have already begun to
emerge and could threaten the achievement of
international harmonization.
In planning a possible move to IFRS, it is
important that US companies monitor progress
on the Boards’ convergence agenda to avoid
spending time now analyzing differences that
most likely will be eliminated in the near future.
At present, it is not possible to know the exact
extent of convergence that will exist at the
time US public companies may be required to
adopt the international standards. However,
that should not stop preparers, users and
auditors from gaining a general understanding
of the similarities and key differences between
IFRS and US GAAP, as well as the areas
presently expected to converge. We hope you
find this guide a useful tool for that purpose.
January 2009
4 US GAAP vs. IFRS The basics

6.
Financial statement presentation
Similarities financial statements. Further, both frameworks
require that the financial statements be
There are many similarities between US GAAP
prepared on the accrual basis of accounting
and IFRS relating to financial statement
(with the exception of the cash flows statement)
presentation. For example, under both
except for rare circumstances. Both GAAPs
frameworks, the components of a complete set
have similar concepts regarding materiality and
of financial statements include: balance sheet,
consistency that entities have to consider in
income statement, other comprehensive income
preparing their financial statements. Differences
for US GAAP or statement of recognized income
between the two tend to arise in the level of
and expense (SORIE) for IFRS, statement of
specific guidance.
cash flows, and accompanying notes to the
Significant differences
US GAAP IFRS
Financial periods Generally, comparative financial Comparative information must be
required statements are presented; however, a disclosed in respect of the previous
single year may be presented in certain period for all amounts reported in the
circumstances. Public companies must financial statements.
follow SEC rules, which typically require
balance sheets for the two most recent
years, while all other statements must
cover the three-year period ended on
the balance sheet date.
Layout of balance sheet No general requirement within IAS 1 Presentation of Financial
and income statement US GAAP to prepare the balance sheet Statements does not prescribe a
and income statement in accordance standard layout, but includes a list
with a specific layout; however, public of minimum items. These minimum
companies must follow the detailed items are less prescriptive than the
requirements in Regulation S-X. requirements in Regulation S-X.
Presentation of debt Debt for which there has been a Debt associated with a covenant
as current versus non- covenant violation may be presented violation must be presented as current
current in the balance as non-current if a lender agreement to unless the lender agreement was
sheet waive the right to demand repayment reached prior to the balance sheet date.
for more than one year exists prior to Deferred taxes are presented as non-
the issuance of the financial statements. current. (Note: In the joint convergence
Deferred taxes are presented as project on income taxes, IFRS is
current or non-current based on the expected to converge with US GAAP.)
nature of the related asset or liability.
Income statement — SEC registrants are required to present Entities may present expenses based on
classification of expenses based on function (for either function or nature (for example,
expenses example, cost of sales, administrative). salaries, depreciation). However, if
function is selected, certain disclosures
about the nature of expenses must be
included in the notes.
US GAAP vs. IFRS The basics 5

7.
US GAAP IFRS
Income statement — Restricted to items that are both Prohibited.
extraordinary items unusual and infrequent.
Income statement — Discontinued operations classification Discontinued operations classification
discontinued operations is for components held for sale or to is for components held for sale or to be
presentation be disposed of, provided that there disposed of that are either a separate
will not be significant continuing cash major line of business or geographical
flows or involvement with the disposed area or a subsidiary acquired
component. exclusively with an intention to resale.
Changes in equity Present all changes in each caption of At a minimum, present components
stockholders’ equity in either a footnote related to “recognized income and
or a separate statement. expense” as part of a separate
statement (referred to as the SORIE if it
contains no other components). Other
changes in equity either disclosed in the
notes, or presented as part of a single,
combined statement of all changes in
equity (in lieu of the SORIE).
Disclosure of SEC regulations define certain key Certain traditional concepts such as
performance measures measures and require the presentation “operating profit” are not defined;
of certain headings and subtotals. therefore, diversity in practice exists
Additionally, public companies are regarding line items, headings and
prohibited from disclosing non-GAAP subtotals presented on the income
measures in the financial statements statement when such presentation is
and accompanying notes. relevant to an understanding of the
entity’s financial performance.
Convergence face of the financial statements, and may
ultimately result in significant changes in the
In April 2004, the FASB and the IASB (the
current presentation format of the financial
Boards) agreed to undertake a joint project
statements under both GAAPs.
on financial statement presentation. As part
of “Phase A” of the project, the IASB issued In September 2008, the Boards issued
a revised IAS 1 in September 2007 (with an proposed amendments to FAS 144 and IFRS 5
effective date for annual reporting periods to converge the definition of discontinued
ending after January 1, 2009) modifying operations. Under the proposals, a discontinued
the requirements of the SORIE within IAS 1 operation would be a component of an entity
and bringing it largely in line with the FASB’s that is either (1) an operating segment (as
statement of other comprehensive income. As defined in FAS 131 and IFRS 8, respectively)
part of “Phase B,” the Boards each issued an held for sale or that has been disposed of, or
initial discussion document in October 2008, (2) a business (as defined in FAS 141(R)) that
with comments due by April 2009. This phase meets the criteria to be classified as held for
of the project addresses the more fundamental sale on acquisition.
issues for presentation of information on the
6 US GAAP vs. IFRS The basics

8.
Interim financial reporting
Similarities financial statements (which are similar but not
identical) and provide for comparable disclosure
APB 28 and IAS 34 (both entitled Interim
requirements. Neither standard mandates
Financial Reporting) are substantially similar
which entities are required to present interim
with the exception of the treatment of certain
financial information, that being the purview
costs as described below. Both require an
of local securities regulators. For example,
entity to use the same accounting policies
US public companies must follow the SEC’s
that were in effect in the prior year, subject
Regulation S-X for the purpose of preparing
to adoption of new policies that are disclosed.
interim financial information.
Both standards allow for condensed interim
Significant difference
US GAAP IFRS
Treatment of certain Each interim period is viewed as an Each interim period is viewed as a
costs in interim periods integral part of an annual period. As discrete reporting period. A cost that
a result, certain costs that benefit does not meet the definition of an asset
more than one interim period may at the end of an interim period is not
be allocated among those periods, deferred and a liability recognized at an
resulting in deferral or accrual of interim reporting date must represent
certain costs. For example, certain an existing obligation. For example,
inventory cost variances may be inventory cost variances that do not
deferred on the basis that the interim meet the definition of an asset cannot
statements are an integral part of an be deferred. However, income taxes
annual period. are accounted for based on an annual
effective tax rate (similar to US GAAP).
Convergence
As part of their joint Financial Statement
Presentation project, the FASB will address
presentation and display of interim financial
information in US GAAP, and the IASB may
reconsider the requirements of IAS 34. This
phase of the Financial Statement Presentation
project has not commenced.
US GAAP vs. IFRS The basics 7

9.
Consolidations, joint venture accounting and
equity method investees
Similarities for all of the entities within a consolidated
group, with certain exceptions under US GAAP
The principle guidance for consolidation
(for example, a subsidiary within a specialized
of financial statements under US GAAP is
industry may retain the specialized accounting
ARB 51 Consolidated Financial Statements
policies in consolidation). Under both GAAPs,
(as amended by FAS 160 Noncontrolling
the consolidated financial statements of the
Interests in Consolidated Financial Statements)
parent and its subsidiaries may be based
and FAS 94 Consolidation of All Majority-
on different reporting dates as long as the
Owned Subsidiaries; while IAS 27 (Amended)
difference is not greater than three months.
Consolidated and Separate Financial
However, under IFRS a subsidiary’s financial
Statements provides the guidance under
statements should be as of the same date as
IFRS. Special purpose entities are addressed
the financial statements of the parent’s unless
in FIN 46 (Revised) Consolidation of Variable
is it impracticable to do so.
Interest Entities and SIC 12 Consolidation —
Special Purpose Entities in US GAAP and IFRS An equity investment that gives an investor
respectively. Under both US GAAP and IFRS, significant influence over an investee (referred
the determination of whether or not entities to as “an associate” in IFRS) is considered an
are consolidated by a reporting enterprise is equity-method investment under both US GAAP
based on control, although differences exist (APB 18 The Equity Method of Accounting for
in the definition of control. Generally, under Investments in Common Stock) and IFRS (IAS 28
both GAAPs all entities subject to the control of Investments in Associates), if the investee is
the reporting enterprise must be consolidated not consolidated. Further, the equity method of
(note that there are limited exceptions in accounting for such investments, if applicable,
US GAAP in certain specialized industries). generally is consistent under both GAAPs.
Further, uniform accounting policies are used
Significant differences
US GAAP IFRS
Consolidation model Focus is on controlling financial Focus is on the concept of the power
interests. All entities are first evaluated to control, with control being the
as potential variable interest entities parent’s ability to govern the financial
(VIEs). If a VIE, FIN 46 (Revised) and operating policies of an entity to
guidance is followed (below). Entities obtain benefits. Control presumed to
controlled by voting rights are exist if parent owns greater than 50%
consolidated as subsidiaries, but of the votes, and potential voting rights
potential voting rights are not included must be considered. Notion of “de facto
in this consideration. The concept of control” must also be considered.
“effective control” exists, but is rarely
employed in practice.
8 US GAAP vs. IFRS The basics

10.
US GAAP IFRS
Special purpose entities FIN 46 (Revised) requires the primary Under SIC 12, SPEs (entities created to
(SPE) beneficiary (determined based on the accomplish a narrow and well-defined
consideration of economic risks and objective) are consolidated when the
rewards) to consolidate the VIE. substance of the relationship indicates
that an entity controls the SPE.
Preparation of Required, although certain industry- Generally required, but there is a limited
consolidated financial specific exceptions exist (for example, exemption from preparing consolidated
statements — general investment companies). financial statements for a parent
company that is itself a wholly-owned
subsidiary, or is a partially-owned
subsidiary if certain conditions are met.
Preparation of The effects of significant events The effects of significant events
consolidated financial occurring between the reporting dates occurring between the reporting dates
statements — different when different dates are used are when different dates are used are
reporting dates of parent disclosed in the financial statements. adjusted for in the financial statements.
and subsidiary(ies)
Presentation of Presented outside of equity on the Presented as a separate component in
noncontrolling or balance sheet (prior to the adoption of equity on the balance sheet.
“minority” interest FAS 160).
Equity-method FAS 159 The Fair Value Option for IAS 28 requires investors (other than
investments Financial Assets and Financial Liabilities venture capital organizations, mutual
gives entities the option to account funds, unit trusts, and similar entities)
for their equity-method investments to use the equity-method of accounting
at fair value. For those equity-method for such investments in consolidated
investments for which management financial statements. If separate
does not elect to use the fair value financial statements are presented
option, the equity method of accounting (that is, those presented by a parent or
is required. investor), subsidiaries and associates
can be accounted for at either cost or
Uniform accounting policies between
fair value.
investor and investee are not required.
Uniform accounting policies between
investor and investee are required.
Joint ventures Generally accounted for using the IAS 31 Investments in Joint Ventures
equity-method of accounting, with the permits either the proportionate
limited exception of unincorporated consolidation method or the equity
entities operating in certain industries method of accounting.
which may follow proportionate
consolidation.
US GAAP vs. IFRS The basics 9

11.
Convergence At the time of this publication, the FASB is
proposing amendments to FIN 46 (Revised).
As part of their joint project on business
Additionally, the IASB is working on a
combinations, the FASB issued FAS 160
consolidation project that would replace IAS 27
(effective for fiscal years beginning on or after
(amended) and SIC 12 and is expected to provide
December 15, 2008) and the IASB amended
for a single consolidation model within IFRS.
IAS 27 (effective for fiscal years beginning
It is currently unclear whether these projects
on or after July 1, 2009, with early adoption
will result in additional convergence, and future
permitted), thereby eliminating substantially all
developments should be monitored.
of the differences between US GAAP and IFRS
pertaining to noncontrolling interests, outside
of the initial accounting for the noncontrolling
interest in a business combination (see the
Business Combinations section). In addition,
the IASB recently issued an exposure draft
that proposes the elimination of proportionate
consolidation for joint ventures.
10 US GAAP vs. IFRS The basics

12.
Business combinations
Similarities assets, liabilities and noncontrolling interests of
the acquired entity are measured (as described
The issuance of FAS 141(R) and IFRS 3(R)
in the table below, IFRS 3(R) provides an
(both entitled Business Combinations),
alternative to measuring noncontrolling interest
represent the culmination of the first major
at fair value), with limited exceptions. Even
collaborative convergence project between the
though the new standards are substantially
IASB and the FASB. Pursuant to FAS 141(R)
converged, certain differences will exist once
and IFRS 3(R), all business combinations are
the new standards become effective. The new
accounted for using the acquisition method.
standards will be effective for annual periods
Under the acquisition method, upon obtaining
beginning on or after December 15, 2008,
control of another entity, the underlying
and July 1, 2009, for companies following
transaction should be measured at fair value,
US GAAP and IFRS, respectively.
and this should be the basis on which the
Significant differences
US GAAP IFRS
Measurement of Noncontrolling interest is measured Noncontrolling interest is measured
noncontrolling interest at fair value, which includes the either at fair value including goodwill or
noncontrolling interest’s share of its proportionate share of the fair value
goodwill. of the acquiree’s identifiable net assets,
exclusive of goodwill.
Assets and liabilities Initial Recognition Initial Recognition
arising from Distinguishes between contractual Contingent liabilities are recognized
contingencies and noncontractual contingencies. as of the acquisition date if there is
Contractual contingencies are measured a present obligation that arises from
at fair value at the acquisition date, past events and its fair value can be
while noncontractual contingencies measured reliably. Contingent assets
are recognized at fair value at the are not recognized.
acquisition date only if it is more likely
than not that the contingency meets the
definition of an asset or liability.
Subsequent Measurement Subsequent Measurement
Contingently liabilities are Contingent liabilities are subsequently
subsequently measured at the higher measured at the higher of its acquisition-
of its acquisition-date fair value, or date fair value less, if appropriate,
the amount that would be recognized cumulative amortization recognized in
if applying FAS 5, Accounting for accordance with IAS 18, Revenue, or
Contingencies. (See “Provisions and the amount that would be recognized if
contingencies” for differences between applying IAS 37, Provisions, Contingent
FAS 5 and IAS 37.) Liabilities and Contingent Assets..
US GAAP vs. IFRS The basics 11

13.
US GAAP IFRS
Acquiree operating If the terms of an acquiree operating Separate recognition of an intangible
leases lease are favorable or unfavorable asset or liability is required only if the
relative to market terms, the acquirer acquiree is a lessee. If the acquiree is
recognizes an intangible asset or the lessor, the terms of the lease are
liability, respectively, regardless of taken into account in estimating the fair
whether the acquiree is the lessor or value of the asset subject to the lease
the lessee. – separate recognition of an intangible
asset or liability is not required.
Combination of entities Accounted for in a manner similar to a Outside the scope of IFRS 3R. In
under common control pooling of interests (historical cost). practice, either follow an approach
similar to US GAAP or apply the
purchase method if there is substance
to the transaction.
Other differences may arise due to different Convergence
accounting requirements of other existing
No further convergence is planned at this
US GAAP-IFRS literature (for example, identifying
time. Note, however, that as of the date of this
the acquirer, definition of control, definition of
publication, the FASB has issued a proposed
fair value, replacement of share-based payment
FSP that would change the accounting for
awards, initial classification and subsequent
preacquisition contingencies under FAS 141(R).
measurement of contingent consideration, initial
The proposed FSP proposes a model that is
recognition and measurement of income taxes,
very similar to the existing requirements of
and initial recognition and measurement of
FAS 141 for purposes of initial recognition.
employee benefits).
Assets and liabilities measured at fair value
would continue to be subject to subsequent
measurement guidance similar to that currently
described in FAS 141(R).
12 US GAAP vs. IFRS The basics

14.
Inventory
Similarities for cost measurement, such as standard cost
method or retail method, are similar under
ARB 43 Chapter 4 Inventory Pricing and IAS
both US GAAP and IFRS. Further, under both
2 Inventories are both based on the principle
GAAPs the cost of inventory includes all direct
that the primary basis of accounting for
expenditures to ready inventory for sale,
inventory is cost. Both define inventory as
including allocable overhead, while selling
assets held for sale in the ordinary course of
costs are excluded from the cost of inventories,
business, in the process of production for such
as are most storage costs and general
sale, or to be consumed in the production of
administrative costs.
goods or services. The permitted techniques
Significant differences
US GAAP IFRS
Costing methods LIFO is an acceptable method. LIFO is prohibited. Same cost formula
Consistent cost formula for all must be applied to all inventories
inventories similar in nature is not similar in nature or use to the entity.
explicitly required.
Measurement Inventory is carried at the lower of cost Inventory is carried at the lower of cost
or market. Market is defined as current or net realizable value (best estimate
replacement cost as long as market is of the net amounts inventories are
not greater than net realizable value expected to realize. This amount may
(estimated selling price less reasonable or may not equal fair value).
costs of completion and sale) and
is not less than net realizable value
reduced by a normal sales margin.
Reversal of inventory Any write-downs of inventory to the Previously recognized impairment
write-downs lower of cost or market create a new losses are reversed, up to the amount
cost basis that subsequently cannot be of the original impairment loss when
reversed. the reasons for the impairment no
longer exist.
Permanent inventory Permanent markdowns do not affect Permanent markdowns affect the
markdowns under the the gross margins used in applying the average gross margin used in applying
retail inventory method RIM. Rather, such markdowns reduce RIM. Reduction of the carrying cost of
(RIM) the carrying cost of inventory to net inventory to below the lower of cost or
realizable value, less an allowance for net realizable value is not allowed.
an approximately normal profit margin,
which may be less than both original
cost and net realizable value.
Convergence abnormal amounts of idle facility expense,
freight, handling costs and spoilage. At present,
In November 2004, the FASB issued FAS 151
there are no other ongoing convergence efforts
Inventory Costs to address a narrow difference
with respect to inventory.
between US GAAP and IFRS related to the
accounting for inventory costs, in particular,
US GAAP vs. IFRS The basics 13

15.
Long-lived assets
Similarities between US GAAP and IFRS in the specific
costs and assets that are included within
Although US GAAP does not have a
these categories as well as the requirement to
comprehensive standard that addresses long-
capitalize these costs.
lived assets, its definition of property, plant and
equipment is similar to IAS 16 Property, Plant
and Equipment, which addresses tangible assets Depreciation
held for use that are expected to be used for Depreciation of long-lived assets is required
more than one reporting period. Other concepts on a systematic basis under both accounting
that are similar include the following: models. FAS 154 Accounting Changes and
Error Corrections and IAS 8 Accounting
Cost Policies, Changes in Accounting Estimates
and Error Corrections both treat changes
Both accounting models have similar recognition
in depreciation method, residual value and
criteria, requiring that costs be included in the
useful economic life as a change in accounting
cost of the asset if future economic benefits
estimate requiring prospective treatment.
are probable and can be reliably measured. The
costs to be capitalized under both models are
similar. Neither model allows the capitalization Assets held for sale
of start-up costs, general administrative and Assets held for sale are discussed in FAS
overhead costs or regular maintenance. 144 and IFRS 5 Non-Current Assets Held for
However, both US GAAP and IFRS require that Sale and Discontinued Operations, with both
the costs of dismantling an asset and restoring standards having similar held for sale criteria.
its site (that is, the costs of asset retirement Under both standards, the asset is measured
under FAS 143 Accounting for Asset Retirement at the lower of its carrying amount or fair
Obligations or IAS 37 Provisions, Contingent value less costs to sell; the assets are not
Liabilities and Contingent Assets) be included depreciated and are presented separately on
in the cost of the asset. Both models require the face of the balance sheet. Exchanges of
a provision for asset retirement costs to be nonmonetary similar productive assets are also
recorded when there is a legal obligation, treated similarly under APB 29 Accounting for
although IFRS requires provision in other Nonmonetary Exchanges as amended by FAS
circumstances as well. 153 Accounting for Nonmonetary Transactions
and IAS 16, both of which allow gain/loss
Capitalized interest recognition if the exchange has commercial
substance and the fair value of the exchange
FAS 34 Capitalization of Interest and IAS 23
can be reliably measured.
Borrowing Costs address the capitalization
of borrowing costs (for example, interest
costs) directly attributable to the acquisition,
construction or production of a qualifying
asset. Qualifying assets are generally defined
similarly under both accounting models.
However, there are significant differences
14 US GAAP vs. IFRS The basics

16.
Significant differences
US GAAP IFRS
Revaluation of assets Revaluation not permitted. Revaluation is a permitted accounting
policy election for an entire class of
assets, requiring revaluation to fair
value on a regular basis.
Depreciation of asset Component depreciation permitted but Component depreciation required if
components not common. components of an asset have differing
patterns of benefit.
Measurement of Eligible borrowing costs do not include Eligible borrowing costs include
borrowing costs exchange rate differences. Interest exchange rate differences from foreign
earned on the investment of borrowed currency borrowings. Borrowing costs
funds generally cannot offset interest are offset by investment income earned
costs incurred during the period. on those borrowings.
For borrowings associated with a For borrowings associated with a
specific qualifying asset, borrowing specific qualifying asset, actual
costs equal to the weighted average borrowing costs are capitalized.
accumulated expenditures times the
borrowing rate are capitalized.
Costs of a major Multiple accounting models have Costs that represent a replacement
overhaul evolved in practice, including: expense of a previously identified component
costs as incurred, capitalize costs and of an asset are capitalized if future
amortize through the date of the next economic benefits are probable and
overhaul, or follow the IFRS approach. the costs can be reliably measured.
Investment property Investment property is not separately Investment property is separately
defined and, therefore, is accounted for defined in IAS 40 as an asset held to
as held for use or held for sale. earn rent or for capital appreciation
(or both) and may include property
held by lessees under a finance/
operating lease. Investment property
may be accounted for on a historical
cost basis or on a fair value basis as an
accounting policy election. Capitalized
operating lease classified as investment
property must be accounted for using
the fair value model.
Other differences include: (i) hedging gains Convergence
and losses related to the purchase of assets,
No further convergence is planned at this time.
(ii) constructive obligations to retire assets,
(iii) the discount rate used to calculate asset
retirement costs, and (iv) the accounting for
changes in the residual value.
US GAAP vs. IFRS The basics 15

17.
Intangible assets
Similarities internally developed intangibles are not
recognized as an asset under either FAS 142
The definition of intangible assets as non-
or IAS 38. Moreover, internal costs related
monetary assets without physical substance is
to the research phase of research and
the same under both US GAAP’s FAS 141(R)
development are expensed as incurred under
and FAS 142 Goodwill and Other Intangible
both accounting models.
Assets and the IASB’s IFRS 3(R) and IAS 38
Intangible Assets. The recognition criteria Amortization of intangible assets over their
for both accounting models require that estimated useful lives is required under both
there be probable future economic benefits US GAAP and IFRS, with one minor exception in
and costs that can be reliably measured. FAS 86 Accounting for the Costs of Computer
However, some costs are never capitalized Software to be Sold, Leased or Otherwise
as intangible assets under both models, such Marketed related to the amortization of
as start-up costs. Goodwill is recognized only computer software assets. In both, if there is
in a business combination in accordance no foreseeable limit to the period over which
with FAS 141(R) and IFRS 3(R). In general, an intangible asset is expected to generate
intangible assets that are acquired outside net cash inflows to the entity, the useful life is
of a business combination are recognized at considered to be indefinite and the asset is not
fair value. With the exception of development amortized. Goodwill is never amortized.
costs (addressed in the following table),
Significant differences
US GAAP IFRS
Development costs Development costs are expensed as Development costs are capitalized
incurred unless addressed by a separate when technical and economic feasibility
standard. Development costs related of a project can be demonstrated
to computer software developed for in accordance with specific criteria.
external use are capitalized once Some of the stated criteria include:
technological feasibility is established in demonstrating technical feasibility,
accordance with specific criteria (FAS intent to complete the asset, and ability
86). In the case of software developed to sell the asset in the future, as well as
for internal use, only those costs incurred others. Although application of these
during the application development stage principals may be largely consistent
(as defined in SOP 98-1 Accounting with FAS 86 and SOP 98-1, there
for the Costs of Computer Software is no separate guidance addressing
Developed or Obtained for Internal Use) computer software development costs.
may be capitalized.
Advertising costs Advertising and promotional costs are Advertising and promotional costs are
either expensed as incurred or expensed expensed as incurred. A prepayment
when the advertising takes place for the may be recognized as an asset only
first time (policy choice). Direct response when payment for the goods or
advertising may be capitalized if the services is made in advance of the
specific criteria in SOP 93-07 Reporting entity’s having access to the goods or
on Advertising Costs are met. receiving the services.
16 US GAAP vs. IFRS The basics

18.
US GAAP IFRS
Revaluation Revaluation is not permitted Revaluation to fair value of intangible
assets other than goodwill is a
permitted accounting policy election
for a class of intangible assets. Because
revaluation requires reference to an
active market for the specific type of
intangible, this is relatively uncommon
in practice.
Convergence the 2008 MOU, the FASB indicated that it will
consider in the future whether to undertake a
While the convergence of standards on intangible
project to eliminate differences in the accounting
assets was part of the 2006 “Memorandum of
for research and development costs by fully
Understanding” (MOU) between the FASB and
adopting IAS 38 at some point in the future.
the IASB, both boards agreed in 2007 not to
add this project to their agenda. However, in
US GAAP vs. IFRS The basics 17

19.
Impairment of long-lived assets, goodwill and
intangible assets
Similarities that an asset found to be impaired be written
down and an impairment loss recognized. FAS
Both US GAAP and IFRS contain similarly
142, FAS 144 Accounting for the Impairment
defined impairment indicators for assessing the
or Disposal of Long-Lived Assets, and IAS 36
impairment of long-lived assets. Both standards
Impairment of Assets apply to most long-lived
require goodwill and intangible assets with
and intangible assets, although some of the
indefinite lives to be reviewed at least annually
scope exceptions listed in the standards differ.
for impairment and more frequently if
Despite the similarity in overall objectives,
impairment indicators are present. Long-lived
differences exist in the way in which impairment
assets are not tested annually, but rather
is reviewed, recognized and measured.
when there are indicators of impairment. The
impairment indicators in US GAAP and IFRS
are similar. Additionally, both GAAPs require
Significant differences
US GAAP IFRS
Method of determining Two-step approach requires a One-step approach requires that
impairment — long-lived recoverability test be performed impairment testing be performed if
assets first (carrying amount of the asset impairment indicators exist.
is compared to the sum of future
undiscounted cash flows generated
through use and eventual disposition).
If it is determined that the asset is not
recoverable, impairment testing must
be performed.
Impairment loss The amount by which the carrying The amount by which the carrying
calculation — long-lived amount of the asset exceeds its fair amount of the asset exceeds its
assets value, as calculated in accordance with recoverable amount; recoverable
FAS 157. amount is the higher of: (1) fair value
less costs to sell, and (2) value in use
(the present value of future cash flows
in use including disposal value). (Note
that the definition of fair value in
IFRS has certain differences from the
definition in FAS 157.)
Allocation of goodwill Goodwill is allocated to a reporting Goodwill is allocated to a cash-
unit, which is an operating segment or generating unit (CGU) or group of
one level below an operating segment CGUs which represents the lowest level
(component). within the entity at which the goodwill
is monitored for internal management
purposes and cannot be larger than
an operating segment as defined in
IFRS 8, Operating Segments.
18 US GAAP vs. IFRS The basics

20.
US GAAP IFRS
Method of determining Two-step approach requires a One-step approach requires that
impairment — goodwill recoverability test to be performed an impairment test be done at the
first at the reporting unit level (carrying cash generating unit (CGU) level by
amount of the reporting unit is comparing the CGU’s carrying amount,
compared to the reporting unit fair including goodwill, with its recoverable
value). If the carrying amount of the amount.
reporting unit exceeds its fair value,
then impairment testing must be
performed.
Impairment loss The amount by which the carrying Impairment loss on the CGU (amount
calculation — goodwill amount of goodwill exceeds the implied by which the CGU’s carrying amount,
fair value of the goodwill within its including goodwill, exceeds its
reporting unit. recoverable amount) is allocated first to
reduce goodwill to zero, then, subject
to certain limitations, the carrying
amount of other assets in the CGU are
reduced pro rata, based on the carrying
amount of each asset.
Impairment loss The amount by which the carrying The amount by which the carrying
calculation — indefinite value of the asset exceeds its fair value. value of the asset exceeds its
life intangible assets recoverable amount.
Reversal of loss Prohibited for all assets to be held and Prohibited for goodwill. Other long-
used. lived assets must be reviewed annually
for reversal indicators. If appropriate,
loss may be reversed up to the newly
estimated recoverable amount, not
to exceed the initial carrying amount
adjusted for depreciation.
Convergence
Impairment is one of the short-term
convergence projects agreed to by the FASB
and IASB in their 2006 MOU. However, as part
of their 2008 MOU, the boards agreed to defer
work on completing this project until their other
convergence projects are complete.
US GAAP vs. IFRS The basics 19

21.
Financial instruments
Similarities and Financial Liabilities. IFRS guidance for
financial instruments, on the other hand, is
The US GAAP guidance for financial
limited to three standards (IAS 32 Financial
instruments is contained in several standards.
Instruments: Presentation, IAS 39 Financial
Those standards include, among others, FAS
Instruments: Recognition and Measurement,
65 Accounting for Certain Mortgage Banking
and IFRS 7 Financial Instruments: Disclosures).
Activities, FAS 107 Disclosures about Fair Value
Both GAAPs require financial instruments to be
of Financial Instruments, FAS 114 Accounting
classified into specific categories to determine
by Creditors for Impairment of a Loan, FAS115
the measurement of those instruments,
Accounting for Certain Investments in Debt
clarify when financial instruments should
and Equity Securities, FAS 133 Accounting for
be recognized or derecognized in financial
Derivative Instruments and Hedging Activities,
statements, and require the recognition of
FAS 140 Accounting for Transfers and Servicing
all derivatives on the balance sheet. Hedge
of Financial Assets and Extinguishments of
accounting and use of a fair value option is
Liabilities, FAS 150 Accounting for Certain
permitted under both. Each GAAP also requires
Financial Instruments with Characteristics of
detailed disclosures in the notes to financial
both Liabilities and Equity, FAS 155 Accounting
statements for the financial instruments
for Certain Hybrid Financial Instruments,
reported in the balance sheet.
FAS 157 Fair Value Measurements, and FAS 159
The Fair Value Option for Financial Assets
Significant differences
US GAAP IFRS
Fair value measurement One measurement model whenever Various IFRS standards use slightly
fair value is used (with limited varying wording to define fair value.
exceptions). Fair value is the price Generally fair value represents
that would be received to sell an asset the amount that an asset could be
or paid to transfer a liability in an exchanged for, or a liability settled
orderly transaction between market between knowledgeable, willing parties
participants at the measurement date. in an arm’s length transaction.
Fair value is an exit price, which may
differ from the transaction (entry) At inception, transaction (entry) price
price. generally is considered fair value.
Use of fair value option Financial instruments can be measured Financial instruments can be measured
at fair value with changes in fair value at fair value with changes in fair value
reported through net income, except reported through net income provided
for specific ineligible financial assets that certain criteria, which are more
and liabilities. restrictive than under US GAAP, are met.
20 US GAAP vs. IFRS The basics

22.
US GAAP IFRS
Day one gains and losses Entities are not precluded from Day one gains and losses are
recognizing day one gains and losses recognized only when all inputs to the
on financial instruments reported at measurement model are observable.
fair value even when all inputs to the
measurement model are not observable.
For example, a day one gain or loss may
occur when the transaction occurs in a
market that differs from the reporting
entity’s exit market.
Debt vs. equity US GAAP specifically identifies certain Classification of certain instruments with
classification instruments with characteristics of characteristics of both debt and equity
both debt and equity that must be focuses on the contractual obligation to
classified as liabilities. deliver cash, assets or an entity’s own
shares. Economic compulsion does not
constitute a contractual obligation.
Certain other contracts that are indexed Contracts that are indexed to, and
to, and potentially settled in, a company’s potentially settled in, a company’s own
own stock may be classified as equity stock are classified as equity when
if they: (1) require physical settlement settled by delivering a fixed number of
or net-share settlement, or (2) give the shares for a fixed amount of cash.
issuer a choice of net-cash settlement or
settlement in its own shares.
Compound (hybrid) Compound (hybrid) financial instruments Compound (hybrid) financial
financial instruments (for example, convertible bonds) are not instruments are required to be split
split into debt and equity components into a debt and equity component and,
unless certain specific conditions are if applicable, a derivative component.
met, but they may be bifurcated into The derivative component may be
debt and derivative components, with subjected to fair value accounting.
the derivative component subjected to
fair value accounting.
Impairment recognition — Declines in fair value below cost may Generally, only evidence of credit
Available for Sale (AFS) result in an impairment loss being default results in an impairment being
financial instruments recognized in the income statement recognized in the income statement of
on an AFS debt security due solely to an AFS debt instrument.
a change in interest rates (risk-free or
Impairment losses recognized through
otherwise) if the entity does not have
the income statement for available-
the positive ability and intent to hold
for-sale equity securities cannot be
the asset for a period of time sufficient
reversed through the income statement
to allow for any anticipated recovery in
for future recoveries. However,
fair value.
impairment losses for debt instruments
When an impairment is recognized classified as available-for-sale may be
through the income statement, a reversed through the income statement
new cost basis in the investment is if the fair value of the asset increases in
established. Such losses can not be a subsequent period and the increase
reversed for any future recoveries. can be objectively related to an event
occurring after the impairment loss
was recognized.
US GAAP vs. IFRS The basics 21

23.
US GAAP IFRS
Hedge effectiveness — Permitted. Not permitted.
shortcut method for
interest rate swaps
Hedging a component The risk components that may be Allows entities to hedge components
of a risk in a financial hedged are specifically defined by the (portions) of risk that give rise to
instrument literature, with no additional flexibility. changes in fair value.
Measurement — effective Requires catch-up approach, Requires the original effective interest
interest method retrospective method or prospective rate to be used throughout the life of the
method of calculating the interest for instrument for all financial assets and
amortized cost-based assets, depending liabilities, except for certain reclassified
on the type of instrument. financial assets, in which case the effect
of increases in cash flows are recognized
as prospective adjustments to the
effective interest rate.
Derecognition of Derecognition of financial assets (sales Derecognition is based on a mixed
financial assets treatment) occurs when effective model that considers both transfer of
control has been surrendered over risks and rewards and control. If the
the financial assets. Control has been transferor has neither retained nor
surrendered only if certain specific transferred substantially all of the
criteria have been met, including risks and rewards, there is then an
evidence of legal isolation. evaluation of the transfer of control.
Special rules apply for transfers involving Control is considered to be surrendered
if the transferee has the practical ability
“qualifying” special-purpose entities.
to unilaterally sell the transferred asset
to a third party, without restrictions.
There is no legal isolation test
The concept of a qualifying special-
purpose entity does not exist.
Measurement — loans Unless the fair value option is elected, Loans and receivables are carried at
and receivables loans and receivables are classified as amortized cost unless classified into
either (1) held for investment, which the “fair value through profit or loss”
are measured at amortized cost, or category or the “available for sale”
(2) held for sale, which are measured category, both of which are carried at
at the lower of cost or fair value. fair value on the balance sheet.
Other differences include: (i) application of sale exception, (v) foreign exchange gain and/
fair value measurement principles, including or losses on AFS investments, (vi) recognition
use of prices obtained in ‘principal’ versus of basis adjustments when hedging future
‘most advantageous’ markets, (ii) definitions transactions, (vii) macro hedging, (viii) hedging
of a derivative and embedded derivative, net investments, (ix) impairment criteria for
(iii) cash flow hedge — basis adjustment and equity investments, (x) puttable minority interest
effectiveness testing, (iv) normal purchase and and (xi) netting and offsetting arrangements.
22 US GAAP vs. IFRS The basics

24.
Convergence The FASB and the IASB have separate, but
related, projects on reducing complexity in
The IASB is currently working on a project to
this area, with both Boards issuing documents
establish a single source of guidance for all fair
in 2008. The FASB issued an exposure draft
value measurements required or permitted
directed at simplifying hedge accounting, and
by existing IFRSs to reduce complexity and
the IASB issued a discussion paper on reducing
improve consistency in their application (similar
complexity in reporting financial instruments.
to FAS 157). The IASB intends to issue an
Additionally, the FASB and the IASB have a joint
exposure draft of its fair value measurement
project to address the accounting for financial
guidance in Q2 of 2009.
instruments with characteristics of equity, with a
In September 2008, FASB issued a proposed goal of issuing a converged standard by 2011.
amendment to FAS 140. The proposed
The IASB has a project on its agenda to
statement would remove (1) the concept of
develop a new standard on derecognition that
a qualifying SPE from FAS 140, and (2) the
is more consistent with the IASB conceptual
exceptions from applying FASB Interpretation
framework of financial reporting. Ultimately,
No. 46 (revised December 2003) Consolidation
the two Boards will seek to issue a converged
of Variable Interest Entities to qualifying SPEs.
derecognition standard.
US GAAP vs. IFRS The basics 23

25.
Foreign currency matters
Similarities income. Once a subsidiary’s financial statements
are remeasured into its functional currency, both
FAS 52 Foreign Currency Translation and IAS
standards require translation into its parent’s
21 The Effects of Changes in Foreign Exchange
functional currency with assets and liabilities
Rates are quite similar in their approach
being translated at the period-end rate, and
to foreign currency translation. While the
income statement amounts generally at the
guidance provided by each for evaluating the
average rate, with the exchange differences
functional currency of an entity is different,
reported in equity. Both standards also permit
it generally results in the same determination
the hedging of that net investment with exchange
(that is, the currency of the entity’s primary
differences from the hedging instrument
economic environment). Both GAAPs
offsetting the translation amounts reported
generally consider the same economies to be
in equity. The cumulative translation amounts
hyperinflationary, although the accounting for
reported in equity are reflected in income
an entity operating in such an environment can
when there is a sale, or complete liquidation
be very different.
or abandonment of the foreign operation, but
Both GAAPs require foreign currency there are differences between the two standards
transactions of an entity to be remeasured into when the investment in the foreign operation is
its functional currency with amounts resulting reduced through dividends or repayment of long-
from changes in exchange rates being reported in term advances as indicated below.
Significant differences
US GAAP IFRS
Translation/functional Local functional currency financial Local functional currency financial
currency of foreign statements are remeasured as if the statements (current and prior period)
operations in a functional currency was the reporting are indexed using a general price index,
hyperinflationary currency (US dollar in the case of a and then translated to the reporting
economy US parent) with resulting exchange currency at the current rate.
differences recognized in income.
Treatment of translation Translation difference in equity is A return of investment (for example,
difference in equity recognized in income only upon dividend) is treated as a partial disposal
when a partial return of sale (full or partial), or complete of the foreign investment and a
a foreign investment is liquidation or abandonment of the proportionate share of the translation
made to the parent foreign subsidiary. No recognition is difference is recognized in income.
made when there is a partial return of
investment to the parent.
24 US GAAP vs. IFRS The basics

26.
US GAAP IFRS
Consolidation of foreign The “step-by-step” method is used The method of consolidation is not
operations whereby each entity is consolidated specified and, as a result, either the
into its immediate parent until the ”direct” or the “step-by-step” method
ultimate parent has consolidated the is used. Under the “direct” method,
financial statements of all the entities each entity within the consolidated
below it. group is directly consolidated into
the ultimate parent without regard
to any intermediate parent. The
choice of method could affect the
cumulative translation adjustments
deferred within equity at intermediate
levels, and therefore the recycling of
such exchange rate differences upon
disposal of an intermediate foreign
operation.
Convergence
No convergence activities are underway or
planned for foreign currency matters.
US GAAP vs. IFRS The basics 25

27.
Leases
Similarities Under both GAAPs, a lessee would record a
capital (finance) lease by recognizing an asset
The overall accounting for leases under and a liability, measured at the lower of the
US GAAP and IFRS (FAS 13 Accounting for present value of the minimum lease payments
Leases and IAS 17 Leases, respectively) is or fair value of the asset. A lessee would record
similar, although US GAAP has more specific an operating lease by recognizing expense
application guidance than IFRS. Both focus on a straight-line basis over the lease term.
on classifying leases as either capital (IAS 17 Any incentives under an operating lease are
uses the term “finance”) or operating, and amortized on a straight line basis over the term
both separately discuss lessee and lessor of the lease.
accounting.
Lessor accounting
Lessee accounting (excluding real estate)
(excluding real estate)
Lessor accounting under FAS 13 and IAS 17 is
Both standards require the party that bears similar and uses the above tests to determine
substantially all the risks and rewards of whether a lease is a sales-type/direct financing
ownership of the leased property to recognize lease or an operating lease. FAS 13 specifies
a lease asset and corresponding obligation, and two additional criteria (that is, collection of
specify criteria (FAS 13) or indicators (IAS 17) lease payments is reasonably expected and no
to make this determination (that is, whether important uncertainties surround the amount
a lease is capital or operating). The criteria of unreimbursable costs to be incurred by the
or indicators of a capital lease are similar in lessor) for a lessor to qualify for sales-type/
that both standards include the transfer of direct financing lease accounting that IAS 17
ownership to the lessee at the end of the lease does not have. Although not specified in IAS
term and a purchase option that, at inception, 17, it is reasonable to expect that if these
is reasonably expected to be exercised. Further, conditions exist, the same conclusion may be
FAS 13 requires capital lease treatment if the reached under both standards. If a lease is a
lease term is equal to or greater than 75% sales-type/direct financing lease, the leased
of the asset’s economic life, while IAS 17 asset is replaced with a lease receivable. If a
requires such treatment when the lease term lease is classified as operating, rental income
is a “major part” of the asset’s economic life. is recognized on a straight-line basis over the
FAS 13 specifies capital lease treatment if the lease term and the leased asset is depreciated
present value of the minimum lease payments by the lessor over its useful life.
exceeds 90% of the asset’s fair value, while IAS
17 uses the term “substantially all” of the fair
value. In practice, while FAS 13 specifies bright
lines in certain instances (for example, 75% of
economic life), IAS 17’s general principles are
interpreted similarly to the bright line tests. As
a result, lease classification is often the same
under FAS 13 and IAS 17.
26 US GAAP vs. IFRS The basics

28.
Significant differences
US GAAP IFRS
Lease of land and A lease for land and buildings that The land and building elements of
building transfers ownership to the lessee or the lease are considered separately
contains a bargain purchase option when evaluating all indicators unless
would be classified as a capital lease the amount that would initially be
by the lessee, regardless of the relative recognized for the land element is
value of the land. immaterial, in which case they would
be treated as a single unit for purposes
If the fair value of the land at inception
of lease classification. There is no 25%
represents 25% or more of the total
test to determine whether to consider
fair value of the lease, the lessee
the land and building separately when
must consider the land and building
evaluating certain indicators.
components separately for purposes
of evaluating other lease classification
criteria. (Note: Only the building is subject
to the 75% and 90% tests in this case.)
Recognition of a If the seller does not relinquish more Gain or loss is recognized immediately,
gain or loss on a sale than a minor part of the right to use the subject to adjustment if the sales price
and leaseback when asset, gain or loss is generally deferred differs from fair value.
the leaseback is an and amortized over the lease term.
operating leaseback If the seller relinquishes more than a
minor part of the use of the asset, then
part or all of a gain may be recognized
depending on the amount relinquished.
(Note: Does not apply if real estate is
involved as the specialized rules are very
restrictive with respect to the seller’s
continuing involvement and they may
not allow for recognition of the sale.)
Recognition of gain or Generally, same as above for operating Gain or loss deferred and amortized
loss on a sale leaseback leaseback where the seller does not over the lease term.
when the leaseback is a relinquish more than a minor part of
capital leaseback the right to use the asset.
US GAAP vs. IFRS The basics 27

29.
Other differences include: (i) the treatment Convergence
of a leveraged lease by a lessor under FAS 13
The Boards are jointly working on a long-term
(IAS 17 does not have such classification),
convergence project on lease accounting
(ii) real estate sale-leasebacks, (iii) real estate
with an overall objective of comprehensively
sales-type leases, and (iv) the rate used to
reconsidering the existing guidance issued
discount minimum lease payments to the
by both standard setters. The Boards have
present value for purposes of determining lease
tentatively decided to defer the development of
classification and subsequent recognition of a
a new accounting model for lessors and to adopt
capital lease, including in the event of a renewal.
an approach that would apply the existing capital
lease model, adapted as necessary, to all leases.
A joint discussion paper is planned to be issued
in the first quarter of 2009, with the Boards then
moving towards publication of an exposure draft.
28 US GAAP vs. IFRS The basics

30.
Income taxes
Similarities Significant differences and
FAS 109 Accounting for Income Taxes and convergence
IAS 12 Income Taxes provide the guidance The IASB is expected to publish an exposure
for income tax accounting under US GAAP draft to replace IAS 12 in 2009 that will eliminate
and IFRS, respectively. Both pronouncements certain of the differences that currently exist
require entities to account for both current tax between US GAAP and IFRS. The table below
effects and expected future tax consequences highlights the significant differences in the
of events that have been recognized (that is, current literature, as well as the expected
deferred taxes) using an asset and liability proposed accounting under the IASB’s
approach. Further, deferred taxes for temporary exposure draft. While initially participating in
differences arising from non-deductible goodwill the deliberations on this proposed standard,
are not recorded under either approach, and the FASB decided to suspend deliberations on
tax effects of items accounted for directly in this project until the IASB issues its exposure
equity during the current year also are allocated document on the proposed replacement to
directly to equity. Finally, neither GAAP permits IAS 12 for public comment. The FASB is expected
the discounting of deferred taxes. to solicit input from US constituents regarding
the IASB’s proposed replacement to IAS 12 and
then determine whether to undertake a project to
fully eliminate the differences in the accounting
for income taxes by adopting the revised IAS 12.
US GAAP IFRS IASB exposure draft
Tax basis Tax basis is a question of Tax basis is generally the IFRS is expected to
fact under the tax law. amount deductible or propose a new definition
For most assets and taxable for tax purposes. for tax basis that will
liabilities there is no The manner in which eliminate consideration
dispute on this amount; management intends of management’s intent
however, when uncertainty to settle or recover the in determination of the
exists it is determined in carrying amount affects tax basis.
accordance with FIN 48 the determination of tax
Accounting for Uncertainty basis.
in Income Taxes.
US GAAP vs. IFRS The basics 29